Food and agribusiness survey
Though some respondents express concern about the impact of non-traditional investors on the market, with 20 per cent believing that there should be some limits on commodity futures contracts. It is difficult to pinpoint the exact concern with non-traditional investors' involvement in the industry; however, some respondents view with concern the ability of large investors, hedge funds and financial institutions to speculate, seeing this as a means of distorting markets and amplifying price volatility.
Price volatility is also identified as a factor which will impact the global agribusiness sector. Many respondents see price volatility as a major source of risk but feel that price regulation to mitigate this risk is neither feasible nor desirable.
Many respondents also note the effects on the sector of increasing demand and changing requirements from emerging markets. As previously discussed, underlying this is urbanisation and the expansion of the middle classes in emerging markets. Respondents recognise that meat and protein-based products are becoming ever more integral to the diets of higher-income individuals and families. Respondents note that urbanisation in particular changes the attitudes of people and exposes them to a wider range of dietary options. All of this further impacts on demand in the sector.
Scarcity of natural resources is also identified by our respondents as an important factor affecting global agribusiness over the next three years. Respondents believe that the lack of appropriate land for crops and difficulty in accessing water will affect agribusiness.
The development of biofuels as a renewable energy source and land ownership restrictions are also identified by respondents as key factors.
Labour force constraints and the cost of labour are considered by respondents to be significant obstacles to the growth of the agribusiness industry. Respondents highlight that industrialisation in emerging markets has resulted in people moving away from agriculture, in part because income for farmers and agricultural producers is not as high as in many other sectors. Young people and workers are more attracted by urban living and the promise of a higher income.
"Germany is very industrialised, so it is easy for people to get jobs in other sectors. In other countries there is no alternative, so farmers stay on as farmers, but in Germany the income for farmers is not very good, so they often choose a different profession."
Ulrich Kittmann, Team head, DZ Bank
Respondents are also concerned by the lack of infrastructure, particularly in emerging economies. This links into the issue of a lack of government support for the industry, with many respondents highlighting the importance of private investment in infrastructure given that public investment levels have declined. However, given the tight profit margins in the agribusiness industry, many respondents are reluctant to invest in their own infrastructure. Furthermore, the natural volatility of the market makes respondents wary of making long-term investments in certain jurisdictions or regions.
Access to water is another major concern for respondents, particularly in dry areas such as parts of Africa and Australia. Droughts appear to be a particular issue for Australia, while respondents highlight the lack of infrastructure and sanitation in Africa to support agricultural initiatives. Respondents express some frustration with perceived government procrastination towards necessary infrastructure upgrades and programmes.
Lack of capital and liquidity remains an issue for many respondents. Respondents recognise that this has improved since the global financial crisis in 2008, but liquidity is still not back to previous levels.
All respondents expect further consolidation. The major US food conglomerates are expected to be acquisitive, as are large Chinese companies looking to consolidate their supply chains. Vertical integration by large multinationals, including the traders, is seen as the most likely trend, as they already have an advantage over smaller domestic producers which have yet to create the necessary infrastructure systems to exploit global opportunities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
